Greed is Good (Fodder for a broad discussion of economics :))

[Pointedstick]

I also agree 100% with MT. It's all about hurting others to get things. If you don't hurt others, I don't see the problem.

Of course, there are ways to hurt others to get your stuff as a biiiig baaaad capitalist that are really sneaky, like taking advantage of the welfare system to underpay your employees and let taxpayers make up the difference, or importing a bunch of slightly cheaper foreign labor or offshoring your production or IT work and firing your domestic employees, or polluting land owned by the government with their permission, knowing that the pollution will harm people who draw water from public lands or whose private land becomes contaminated, etc. There are lots of other things I can think of.

Those would be examples of the immoral accumulation of wealth and I would fully support reversing the policies that allowed or encouraged those people to behave that way. But barring stuff like that? Accumulate away.

[jafs]

Well, then we're more on the same page than it seemed - so much for intractable political differences 

The whole second yacht thing was shorthand for progressive taxation - I thought that was clear.  If we instituted a better more progressive taxation system, then it might cut into the ability of the very rich to buy all of the luxuries they'd want to buy.  I consider that a minor inconvenience at most, and certainly not hurting them in any way.

There are other ways, other than taxation, that could also do that, like various kinds of regulation, as well.

[MediumTex]

Well, then we're more on the same page than it seemed - so much for intractable political differences 

The whole second yacht thing was shorthand for progressive taxation - I thought that was clear.  If we instituted a better more progressive taxation system, then it might cut into the ability of the very rich to buy all of the luxuries they'd want to buy.  I consider that a minor inconvenience at most, and certainly not hurting them in any way.

There are other ways, other than taxation, that could also do that, like various kinds of regulation, as well.

To put a nice spin on it, think of it like the salary cap in the NFL--it's not designed to limit competition, it's designed to foster it.

So, too, with progressive taxation.  It allows people to get rich, but not so rich that they can take over every institution in society vampire squid-style.

The super rich don't use their extra money to buy fleets of yachts.  They use it to buy power and access.

[MediumTex]

If you are the CEO of a company and you make more than 300x the average of your employees - you're greedy.  Oh wait, that's now the average ratio between American CEO and worker salaries.  Up from a ratio of 20x in 1965.  See http://fortune.com/2015/06/22/ceo-vs-worker-pay/

While I think a less progressive tax system has alot to do with this change from 20x to 300x, I'm not sure it is the primary reason.  I've got to think the main cause is simply a cultural shift.  That is, in the mid-1960's, a CEO wouldn't think of advocating a salary 300 times that of his firm's median salary because why would he do that?!

Top tier talent in all fields has gotten a lot more expensive in recent decades.

I wonder what the salary spread is between Katie Couric and the person who does her hair?

How about the spread between Tom Brady and the guy who deflates his balls for him? 

[Libertarian666]

I'm side-stepping a bit for a while, because I like you and enjoy our conversations, and don't want to create friction.

Also, it's hard for me to say. 

I don't think it's necessarily greedy to want to be financially independent, so that you don't have to work for anybody else.

If everybody did what I do, the entire economy would collapse into a huge depression and need to be re-created along substantially different lines. In a lot of ways, my extreme saving habits are only possible because the of the selfless extreme consumption habits of others.

I assume this is a joke, because (I hope) you know way too much about economics to believe it.

So 25 times one's annual spending is not greedy unless that figure is measured in billions of dollars. So are billionaires the greedy ones? How about millionaires? Multi-millionaires?

[MediumTex]

I'm side-stepping a bit for a while, because I like you and enjoy our conversations, and don't want to create friction.

Also, it's hard for me to say. 

I don't think it's necessarily greedy to want to be financially independent, so that you don't have to work for anybody else.

If everybody did what I do, the entire economy would collapse into a huge depression and need to be re-created along substantially different lines. In a lot of ways, my extreme saving habits are only possible because the of the selfless extreme consumption habits of others.

I assume this is a joke, because (I hope) you know way too much about economics to believe it.

If people went from spending most of what they make to only spending half of it, you don't think the economy would suffer?

Wouldn't the economy begin to react to the sudden drop in demand by scaling back production and laying people off, which would further reduce aggregate demand?  With people saving such massive amounts with no demand for credit for economic expansion, interest rates would plummet.  And just like that, you would have a deflationary spiral that would only stop when people began spending again, right?

[MediumTex]

I assume this is a joke, because (I hope) you know way too much about economics to believe it.

If people went from spending most of what they make to only spending half of it, you don't think the economy would suffer?

Wouldn't the economy begin to react to the sudden drop in demand by scaling back production and laying people off, which would further reduce aggregate demand?  With people saving such massive amounts with no demand for credit for economic expansion, interest rates would plummet.  And just like that, you would have a deflationary spiral that would only stop when people began spending again, right?

MT, I agree, but fortunately (?) it's all theoretical, because most humans will spend all they get, plus whatever they can finance on credit.  There is exactly ZERO danger of everyone going frugal.  Human nature can't abide it.

It may seem that way, but the U.S. went from the roaring twenties to the Depression in just a few years.  We went from doing the Charleston all night long in dimly lit speakeasies to not even being able to keep childrens' faces clean in less than a decade.

1920s:

We can't stop dancing!



1930s:

We used to have a rag to wipe our faces, but we got behind on our rag payments and the bank came and took it:

[Pointedstick]

If everyone saved 69% of their income, the economy would adapt. Eventually. And the time between then and eventually would usher in a lot of pain. That's what I'm talking about. Big transitions always cause a lot of pain.

Though like Desert says, there is precisely zero chance of it happening.

[MediumTex]

Brother, can you spare a Wet One?

[Libertarian666]

If everybody did what I do, the entire economy would collapse into a huge depression and need to be re-created along substantially different lines. In a lot of ways, my extreme saving habits are only possible because the of the selfless extreme consumption habits of others.

I assume this is a joke, because (I hope) you know way too much about economics to believe it.

If people went from spending most of what they make to only spending half of it, you don't think the economy would suffer?

Wouldn't the economy begin to react to the sudden drop in demand by scaling back production and laying people off, which would further reduce aggregate demand?  With people saving such massive amounts with no demand for credit for economic expansion, interest rates would plummet.  And just like that, you would have a deflationary spiral that would only stop when people began spending again, right?

First, let's assume that the Fed stops printing money so that interest rates reflect actual rates of time preference rather than their meddling.

Then, if people stopped spending, what would happen to that saved money? It doesn't disappear just because they stop spending it. It would be available to finance borrowing for productive uses. This would make projects that were previously infeasible due to high interest rates or lack of available loan money into feasible projects that would employ people.

This is economics 101, or at least it was before Keynesians took over academe.

[MediumTex]

I assume this is a joke, because (I hope) you know way too much about economics to believe it.

If people went from spending most of what they make to only spending half of it, you don't think the economy would suffer?

Wouldn't the economy begin to react to the sudden drop in demand by scaling back production and laying people off, which would further reduce aggregate demand?  With people saving such massive amounts with no demand for credit for economic expansion, interest rates would plummet.  And just like that, you would have a deflationary spiral that would only stop when people began spending again, right?

First, let's assume that the Fed stops printing money so that interest rates reflect actual rates of time preference rather than their meddling.

Then, if people stopped spending, what would happen to that saved money? It doesn't disappear just because they stop spending it. It would be available to finance borrowing for productive uses. This would make projects that were previously infeasible due to high interest rates or lack of available loan money into feasible projects that would employ people.

This is economics 101, or at least it was before Keynesians took over academe.

I agree with you in theory, but in practice when this process starts banks tighten their lending standards and businesses see little point in borrowing to expand operations where there is already way too much economic capacity relative to demand, right?

Isn't that what happened in the 1930s and again in 2008?  All anyone was talking about in 2008 were businesses hunkering down and trying to survive.  No one was talking about all of the credit that was now available for business expansion because people were saving more and spending less.

I know the Austrian analysis of these situations and how it would say to let the economy completely crater and then rebuild based upon sound money principles, but the problem is that the economic cratering process can so demoralize consumers that they are never able to return to their free spending ways, even when the economy improves.  The harshness of the downturn can turn consumers into economic zombies--they aren't dead, but they might as well be.

***

I hear the Lollipop Guild has some moist towelettes, but we have to tell them we are full-grown miniature women, okay?

[Pointedstick]

First, let's assume that the Fed stops printing money so that interest rates reflect actual rates of time preference rather than their meddling.

Then, if people stopped spending, what would happen to that saved money? It doesn't disappear just because they stop spending it. It would be available to finance borrowing for productive uses. This would make projects that were previously infeasible due to high interest rates or lack of available loan money into feasible projects that would employ people.

Is there a lack of money available to finance productive projects? My impression of the current set of problems with our economy was that there is an enormous amount of money that its holders are desperate to have people borrow for productive uses, going so far as to offer generationally low interest rates, but that there is a paucity of businesses willing to borrow this money for a variety of reasons, the biggest one being a projected lack of demand for the products that would be created via a debt-financed expansion of production.

[rickb]

What has clearly been happening, though, is the government's red ink has been almost solely the result of not taxing the wealthy at historical levels, which is another argument against the idea that this country is somehow moving toward an anti-wealth socialist-type of system--it's actually quite the opposite.  Note that as a percentage of GDP, government spending is not significantly different today from historical post-WW2 levels.  You might say that the U.S. government today really is the best that money can buy when measured by the way the government takes special care of the rich people--i.e., they get better and better treatment, while paying less and less taxes as a percentage of their income and assets.

I completely agree with this and it strikes me as incredibly ironic that the folks who are primarily responsible for this (i.e. Republicans) are now so gosh darned worried about the deficit.  In my post that seems to have kicked off this discussion about greed I posed a serious question that absolutely no one has responded to.

Assuming all you conservatives care about the deficit, what exactly is your plan to eliminate it without raising taxes on folks I think we can all agree are greedy incredibly rich?

I've modified the quote.

Here's last year's spending as a pie chart.

[img width=500]https://media.nationalpriorities.org/up ... nacted.png[/img]

The top three expenditures in the federal budget are Social Security, Medicare/Medicaid (including what I believe is a relatively small amount of subsidies for "Obamacare"), and military - in that order.  These 3 combined account for more than 75% of the federal budget.  This year's deficit is projected to be more than $500B, which is more than 1/8 of what is being spent.

Balancing the budget requires cutting spending and/or raising taxes.

If you think raising taxes on the top 0.1% (folks making more than $1.8M/year), or the top 1% (folks making more than $428,000/year) should not be considered - even though historical rates on very, very, very high earners have been MUCH higher than they are now - then what exactly is your plan?  I'm not saying I want their yachts.  I'm saying I want them paying more income taxes like they used to in the "good old days" that conservatives seem to long for.  BTW, a sneaky little trick the folks at http://taxfoundation.org/article/summar ... 015-update play with the tables is that they only include income taxes, not SS tax (or the Medicare surtax).  This basically adds 7.5% to the tax on income that essentially everyone pays on ALL of their income except those in the top tax brackets (who pay this on only the first $118,000 of their income).  For someone making $1.8M the net effect of this is that the SS tax is a fairly negligible increase in their overall tax rate (28% to 28.5% for someone making $1.8M, and it goes down from there) - assuming ANY of their income is salary (you don't pay this on capital gains).  Counting both income taxes and SS taxes, those in the top 0.1% pay about 28.5% while those at the top 10% threshold ($127,695/year) pay about 27.7%.  We're sure stealing WAY too much from those rich bastards (compared to everyone else), aren't we?

Note that cutting Social Security would affect people who have already retired and are already receiving checks.  If you say "cut SS spending", you're saying reduce the amount these folks are currently getting.  An across the board benefits cut of 40% would about do it.  Also note that SS is fully paid for by the SS tax - which the ultra rich folks largely avoid (they do indeed pay their $8850 per year, but that's virtually nothing compared to their overall income).

If you say "cut Medicare/Medicaid", please say how.  Are you going to wave a magic wand so old or poor people won't get sick?  Or are you going to make hospitals refuse to treat them somehow (death squads - that's what we need!)?  Palliative care only if you're over 85?  Increase the out of pocket costs so only relatively rich folks can afford treatment?

I know you're not going to say cut military spending.

The 4th highest expenditure on the list is interest on the debt.  Cutting this means defaulting on Treasuries.

The 5th highest expenditure is veteran's benefits, which I'm thinking you're probably not going to suggest cutting.

The rest only add up to about $473M altogether - cutting them by 100% isn't enough.

Go.

[barrett]

Does anyone else look at current tax rates and feel they are in the "about right" category? You can only tax lower and middle income workers so much, because otherwise the government needs to step in and give back to them what they have already taken away. If the rich are taxed too heavily, they have a tendency to take their assets elsewhere, right? Ditto with corporations.

Craig's point about attacking the immigration issue resonates with a lot of folks but I think it ignores that a lot of cracking down is already being done. The age at which SS can be taken could be kicked out another couple of years. Getting rid of the SS file-and-suspend strategy is one cost cutting measure about to take effect. It seems there's a natural human tendency to oversimplify issues like this when they probably need to be approached from many angles simultaneously... which I think is rickb's point. The low hanging budget fruit has already been plucked.

[barrett]

I personally think the focus on the deficit is misplaced.  I was plumbing old posts yesterday and found this one from member melveyr.  I think he was 14 when he wrote this (OK, not really... but I bet he was only 20 or 21).

Well if you give every poor person 30K, your problem is that every poor person now has 30K. Their dollars are going to compete with yours when you go to the supermarket. You are less relatively wealthy than you were before. If you are a bondholder this one time cash injection will cause a jump in the CPI giving you a lower real return.

Now with drawing the line, I am unsure if you are constricting the discussion to helping the poor or broader government deficits. Assuming the latter, government deficits can be destructive if the economy is operating close to full employment (for both labor or physical capital). When the economy is operating at full employment, the governments spending starts competing with private spending. This is the only time it is appropriate to use metaphors of government "taking."

Think about the economy as like an auction. Right now we have skilled workers, and the market is not even making a bid for them. Inflation only gets bad when people are having a bidding war for resources. We are so far away from that. Right now, increased demand would lead to increased production.

Benko, as modern people I think we think too abstractly. Money is something that we created. It is merely a social construct that gives power to some and it is used to orchestrate the movement of real goods and services. Realizing that we have an unlimited amount of this social construct isn't that shocking. What is limited is the real goods and services that we buy with that money. Sometimes having more of the social construct around helps us orchestrate the movement of real goods and services in an efficient manner, and sometimes it doesn't. I think looking at what we are producing relative to our capacity is the first place to look.

Holy crap, I wish we could get melveyr back on here as an active poster. That post makes me want to either crawl back into bed and give up, or check every single book out of the library. Not sure which. Can we start a grass roots Bring Back Ryan Melvey movement?

[jafs]

Does anyone else look at current tax rates and feel they are in the "about right" category? You can only tax lower and middle income workers so much, because otherwise the government needs to step in and give back to them what they have already taken away. If the rich are taxed too heavily, they have a tendency to take their assets elsewhere, right? Ditto with corporations.

Craig's point about attacking the immigration issue resonates with a lot of folks but I think it ignores that a lot of cracking down is already being done. The age at which SS can be taken could be kicked out another couple of years. Getting rid of the SS file-and-suspend strategy is one cost cutting measure about to take effect. It seems there's a natural human tendency to oversimplify issues like this when they probably need to be approached from many angles simultaneously... which I think is rickb's point. The low hanging budget fruit has already been plucked.

Last time I looked, corporations and the ultra-rich are paying historically very low "effective" tax rates.

And, I completely agree that these issues are complex, and need to be looked at from different angles/approaches if we want to really make any headway on them.

Also, glad this discussion was moved - I didn't see any of my posts in the DT thread, and worried I'd been deleted for some reason!

[Pointedstick]

Well, then we're more on the same page than it seemed - so much for intractable political differences 

Excellent! I'm not really on board with progressive taxation as a solution, as the implicit model of that policy is an acknowledgment of the legitimacy of the original wealth accumulation--it just skims a bit off the top. If the wealth was accumulated illegitimately, by knowingly hurting other people or abusing and stressing a system designed to help others, then the real solution is to address the failures of policy and systems design that allowed those abuses to happen in the first place.

[Pointedstick]

To answer your question, rickb, I would propose the following:

* stop caring so much about the deficit; the USA has the luxury of not caring for a good long while as long as we don't destroy our own productive capacity.

* dramatically cut the military budget, reducing the number of carrier battlegroups, the size of the armored divisions, the redundancy among branches (e.g. the navy has planes, the marines have boats). Increase standardization between branches and aggressively implement policies and technologies to make the supply chain more streamlined and inexpensive. Reduce reliance on missiles that cost a million bucks a pop in favor of artillery, dumb bombs, lasers, railguns, and *gasp* not firing so many of these darn things into undeclared warzones. Result: lower military spending, diminished capacity to simultaneously fight multiple conflicts. Losers: the military-industrial complex

* replace medicare, medicaid, SCHIP, and the other patchwork of health care systems with a new single system guaranteeing care and a low out-of-pocket maximum for the really expensive conditions like cancer and alzheimers. For everything else, including all routine care, all preventative care, minor surgeries, and stuff like that, you pay cash or buy inexpensive, lightly-regulated private insurance which will rapidly become as cheap as car insurance. Result: lower costs for people, far lower cost burden for the federal government. Losers: large hospitals, elements of the medical industry currently receiving a lot of largesse

* eliminate the FDA or else dramatically reduce the price and bureaucratic hassle of getting medicines approved, including dumb policies like requiring re-approval of drugs already sold in the USA under a different name, but the actual pills are identical.

* eliminate unemployment "benefits" (lol, a benefit to being unemployed ) and pass a new unemployment insurance system that's actual insurance, i.e. revenue-neutral or profitable. Dramatically decrease unemployment by implementing mandatory E-verify, phasing out H1B and H2B visas, implementing tariffs or counter-currency-manipulation against currency manipulators like China.

* eliminate farm subsidies.

[jafs]

Well, then we're more on the same page than it seemed - so much for intractable political differences 

Excellent! I'm not really on board with progressive taxation as a solution, as the implicit model of that policy is an acknowledgment of the legitimacy of the original wealth accumulation--it just skims a bit off the top. If the wealth was accumulated illegitimately, by knowingly hurting other people or abusing and stressing a system designed to help others, then the real solution is to address the failures of policy and systems design that allowed those abuses to happen in the first place.

That's fine with me - I prefer things like raising minimum wages and/or other regulations as well.

[jafs]

To answer your question, rickb, I would propose the following:

* stop caring so much about the deficit; the USA has the luxury of not caring for a good long while as long as we don't destroy our own productive capacity.

* dramatically cut the military budget, reducing the number of carrier battlegroups, the size of the armored divisions, the redundancy among branches (e.g. the navy has planes, the marines have boats). Increase standardization between branches and aggressively implement policies and technologies to make the supply chain more streamlined and inexpensive. Reduce reliance on missiles that cost a million bucks a pop in favor of artillery, dumb bombs, lasers, railguns, and *gasp* not firing so many of these darn things into undeclared warzones. Result: lower military spending, diminished capacity to simultaneously fight multiple conflicts. Losers: the military-industrial complex

* replace medicare, medicaid, SCHIP, and the other patchwork of health care systems with a new single system guaranteeing care and a low out-of-pocket maximum for the really expensive conditions like cancer and alzheimers. For everything else, including all routine care, all preventative care, minor surgeries, and stuff like that, you pay cash or buy inexpensive, lightly-regulated private insurance which will rapidly become as cheap as car insurance. Result: lower costs for people, far lower cost burden for the federal government. Losers: large hospitals, elements of the medical industry currently receiving a lot of largesse

* eliminate the FDA or else dramatically reduce the price and bureaucratic hassle of getting medicines approved, including dumb policies like requiring re-approval of drugs already sold in the USA under a different name, but the actual pills are identical.

* eliminate unemployment "benefits" (lol, a benefit to being unemployed ) and pass a new unemployment insurance system that's actual insurance, i.e. revenue-neutral or profitable. Dramatically decrease unemployment by implementing mandatory E-verify, phasing out H1B and H2B visas, implementing tariffs or counter-currency-manipulation against currency manipulators like China.

* eliminate farm subsidies.

I think the debt/deficit situation is at historically very high levels, so it's a valid concern, especially since too much revenue is going to pay interest on the debt.

Generally, I like the idea of cutting military spending, but am concerned about the effect of that, as people/businesses lose jobs/income, and unemployment is already high.

Not sure I'd agree on all the details, but I like the idea of insurance being used for large, unexpected issues rather than routine care, and routine regular care becoming more affordable.

Eliminating the FDA is a scary-sounding idea to me - I'd prefer to improve it instead.

I like the idea of "protectionist" policies.

And am generally anti-subsidy.

[jafs]

Well, we'd have to look it up, but our national debt/GDP ratio is the highest it's been in a long time.

Looks like we're spending about $200 billion/yr on interest payments - sounds like a lot to me.  And, it's projected for that to just keep increasing if we don't do something to slow it down.  That's a whole bunch of government revenue that could be spent in better ways, I'd think.  By 2021 it's projected to exceed all national defense spending.

I'm not sure what you mean by productive capacity - can you clarify that for me?

Our national debt/GDP ratio has only exceeded 100% twice since 1900 (and never before that), and that's where we're at today.

[Pointedstick]

I'm not sure what you mean by productive capacity - can you clarify that for me?

National stuff output. Capacity to combine labor, raw materials, and technical expertise to produce useful things that didn't exist before.

[jafs]

I think that's a distinction without a difference.  Our national debt currently exceeds our annual GDP, and that's only happened very rarely throughout our history.  And it's just going to get worse.  I'm sure that everybody on here understands that annual deficits increase the national debt.

How do you measure productive capacity?

If I remember right, we had some pretty high inflation over that time span - do you have a chart that takes inflation into account?

[Xan]

I think that's a distinction without a difference.  Our national debt currently exceeds our annual GDP, and that's only happened very rarely throughout our history.  And it's just going to get worse.

The question is, why does that matter?  Is the debt something that has to be paid back?

[jafs]

I think that's a distinction without a difference.  Our national debt currently exceeds our annual GDP, and that's only happened very rarely throughout our history.  And it's just going to get worse.

The question is, why does that matter?  Is the debt something that has to be paid back?

Well, first, if you think of it as an unsecured debt/income ratio, I doubt that any reasonable financial experts would think that having 100% of your annual income in unsecured debt is a good idea - our cc companies seem to think that about 30% of our annual income is a good limit.

Then, it depends - certainly at some point, bonds will mature, meaning that the bondholders must be paid back.  We could have a rolling series of bonds, of course.

Annual deficits increase the national debt and thus, increase the interest payments, which eat up more government revenue that could be used for better things.